Why Automakers Can’t Afford to Please Trump Anymore

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Part 3
Why Automakers Can’t Afford to Please Trump Anymore PART 3 OF 3

Why Tesla Could Become Trump’s Favorite Automaker

Trump and the US automakers

Previously in this series, we looked at how Ford Motor Company (F) can’t afford to please the Trump administration anymore. Ford’s worsening profitability amid stagnating US auto sales needs immediate attention, which may require several cost reduction measures including job cuts. Now, let’s look at why Tesla (TSLA), a fairly new US automaker, could become Donald Trump’s favorite auto company.

Why Tesla Could Become Trump’s Favorite Automaker

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Tesla’s future plans

Despite being a much younger company than legacy automakers such as General Motors (GM), Ford, and Fiat Chrysler (FCAU), Tesla has gotten a great deal of fanfare in recent years. As of May 18, Tesla was the most valuable US auto company with a market cap of $50.3 billion. GM’s and Ford’s market caps stood at $48.93 billion and $42.85 billion, respectively.

As of May 18, 2017, Tesla’s stock has returned ~43% on a year-to-date basis. These gains are about eight times higher than the S&P 500 Index’s (SPY) 5.3% rise in 2017 so far.

Tesla is currently focusing on its plan to deliver its first mass-market EV (electric vehicle) Model 3 on time. The company is targeting a huge jump in its annual production capacity to about 500,000 car units by 2018, which would be a big leap from Tesla’s production of about 84,000 car units in 2016.

Why Trump could favor Tesla

Currently, Tesla manufactures all of its vehicles in the US. The company has nearly completed the construction of its Nevada-based Gigafactory-1, which should help it to achieve its high volume production plan by next year. Despite high dependence on machines and robots, the factory should create thousands of new jobs in the US.

Unlike other auto companies, Tesla’s electric car could continue to be in demand despite softening industry-wide sales. While other legacy automakers are still struggling to have a successful electric vehicle (or EV) lineup, Tesla has already proved its dominance in the EV segment. Tesla’s dominance in this segment is why a downturn in the US auto sales wouldn’t affect its future growth as much as it could affect legacy automakers’ business. Also, demand for EVs won’t be affected by any future oil price rises. Higher demand for Tesla’s vehicles is likely to create more jobs in the US market, which might impress Donald Trump.

Visit Market Realist’s Autos page to stay updated on auto companies’ latest earnings results.


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